HR Tech Implementation — SaaS Vs On-Premise — The Cost Breakdown

If you thought that the debate is settled, well not yet. The challenge for HR leaders would be to take a Total Cost of Ownership view and consider the market forces where the solution providers are leaving no choice to companies but to move to cloud.

So if cloud becomes the norm — what does it mean to your costs? Let’s look at what 2 Sierra Cedar HR Systems Survey White Paper published at 2 different times tell us.

Sierra-Cedar HR Systems Survey White Paper is one of the most comprehensive HR Technology related survey that is out there. I personally like the depth and breadth of this report and all buyers and sellers of HR Technology should make this a customary read for their purpose and understanding.

The intent of this article is to draw your attention to what remains same between the report last year and what changed significantly. I hope this review helps you in your decision making process.

The Overall Cost

The figure on left is from the Sierra Cedar 2015–16 Survey White paper, while the next one is from the Sierra Cedar 2016–17 Survey white paper.

What this clearly indicates that for larger HR Tech implementations the cost per employee per year is reducing while for smaller HR Tech implementation it seems to be increasing.

This is an interesting trend as more and more HR Tech solution providers are looking to capture the Small & Medium companies we can expect the cost per employee per year in the Small and Medium segment to come down & companies will have to innovate to reduce this cost for their customers.

Cost & Deployment Model

The Sierra Cedar 2015–16 Survey White paper mentioned that deployment costs varies only slightly for SaaS vendor fees or BPO fees, compared to On Premise licensed fees, maintenance and hosting expenditures.

However now the Sierra Cedar 2016–17 Survey white paper, breaks this up and presents a very interesting picture.

So the more you buy the average cost per employee per year drops to a 3rd roughly. The interesting aspect here is that companies which use only SaaS see a higher per employee cost over companies with traditional on-premise deployment model. So what’s the business case for organizations to move to the cloud? Are the vendors driving companies to the cloud by not supporting on premise deployments?

What’s noteworthy here that the cost for SaaS is just the vendor fees and does not include maintenance or other fee. So how does one arrive at the total cost of ownership between a On Premise vs SaaS solution?

In search of that answer let’s look at the Support & Implementation cost picture over these 2 reports.

Implementation & Support Costs

The Sierra Cedar 2015–16 Survey White paper compared these costs with HRMS + 7 or 8 other HR modules across sizes and as one can see makes a point in favour of SaaS solutions. What one needs to consider is SaaS solutions will come with a higher license cost while the overall implementation & support costs would be lower. Considering the average age of HR Technology between 3 to 5 years, the buyer will have to create a financial model to justify this investment in HR Technology. This is in my opinion the biggest gap today in any HR tech implementation.

The Sierra Cedar 2016–17 Survey white paper offers a more deeper look at this cost across different levels of usage.

While reading these figure one has to keep in mind that you have to look at this horizontally as the actual usage of HR modules across organization size is different in this picture. One can clearly see that the cost difference between a SaaS & Licensed solution for small or large organization is not significant here. While for a mid size organization the cost for SaaS is almost double especially when done via external 3rd party vendors that many SaaS solutions providers are moving to.

So if you are considering to implement an HR Tech solution it’s very critical for you to ask the question — who is going to implement my solution — the vendor herself or a 3rd party?

Next Steps?

As per the report these numbers are to be used as starting points and the report advises organizations looking to implement HR technology to benchmark with companies of similar size, industry and proposed technology environment to identify potential expenditures.

This is much easier said than done as getting this information is difficult and the buyer is dependent on industry network or the vendor itself to get such information. The other key aspect is for HR leaders to recognize the importance of the various moving parts in the HR technology story and involve a diverse cross functional team including IT & Finance to help in the decision making process.

Ultimately you may not make the decision based purely on cost however you can’t afford to ignore it completely too