HRIS vs. HRMS vs. HCM—what’s the difference?

HRIS is synonymous with connected data management of various HR processes such as benefits, workforce management, payroll, and core HR. As HR teams began to take on additional responsibilities such as talent acquisition and recruitment, the HRIS helped maintain, manage, and process detailed employee information and human-resources–related policies and procedures. The most sophisticated HRISs are interactive systems of information management, standardizing HR tasks and processes while facilitating accurate recordkeeping and reporting. The HRIS offers more efficient interactions between employees and the companies they work for and frees HR professionals to perform more strategic, high-value work. Many people still use the term HRIS today.

HRMS expanded on the HRIS to offer a more complete suite of software that organizations could use to manage internal HR functions. HRMS was used by analysts as the term to describe HR software suites during the early 2000s when on-premises systems were the primary type of software used. From employee data management to payroll, recruitment, benefits, training, talent management, employee engagement, and employee attendance, an HRMS helped HR professionals manage a more modern workforce and put information about a company’s most valuable assets in front of the people who needed it. Although people still use the term HRMS to describe systems that are now hosted in the cloud, this term is not used as widely when referring to natively built cloud applications. The terms HRMS and HCM are still interchangeable and you will find information on both if you do a web search.

HCM is now commonly used to describe a complete suite of HR applications, built in the cloud, that are designed to improve the employee experience. It was used in the pre-cloud era as well, however a clear transition of analysts referring to the space as HCM continues to help this term gain traction with customers and vendors. An HCM solution today often incorporates digital assistants, AI, and other tools that enable users to collaborate and share information across teams. Additional functionality includes advanced talent management tasks such as performance management, learning, succession planning, and compensation planning. In addition, business planning capabilities are included such as strategic workforce planning and workforce modeling. HCM covers the range of HR functions, whether they are data-based, transactional, or strategic. It transforms the traditional administrative functions of human resources departments—recruiting, training, payroll, compensation, and performance management—into opportunities to drive engagement, productivity, and business value. HCM considers the workforce as more than just a cost of doing business; it is a core business asset whose value can be maximized through strategic investment and management—just like any other asset.

HR challenges in the age of digital transformation

New innovations in technology are changing every aspect of how we live and work, making the workforce more mobile, global, and diverse than ever. To keep pace with change and ultimately thrive in the digital age, companies need HR to play a critical role in their organizations.

Today, HR teams are expected to take on a more strategic role in the business. They must find ways to optimize the workforce and plan for future organizational changes such as mergers and acquisitions, business expansions, and reorganizations. They’re also expected to make the employee experience exciting and engaging, help executives and individual contributors make faster and smarter decisions, and boost employee engagement and business performance.

To successfully meet the challenges they face, HR organizations need a flexible, highly secure and scalable HCM solution. Yet many organizations still rely on on-premises systems that lack agility and are costly and time consuming.

The benefits of a cloud-based HCM system

Deploying an HCM system in the cloud has numerous benefits over an on-premises system, including the following:

• Easy scalability. In the cloud, you can easily scale up or down as business needs change. Expand or reduce your operations as needed, with cloud-based HCM you can quickly implement a modern solution while maintaining financial flexibility and controlling costs.
• Greater control over operational versus capital expenditures. In the cloud, you pay only for what you use, and you don’t have to invest in expensive infrastructure. Your expenses are OpEx rather than CapEx.
• Quick and easy access to innovation. Because development and deployment happen very quickly in the cloud, you have access to upgrades and innovations much sooner, which speeds the pace of innovation. Updates happen automatically—without the need for human labor.
• Enhanced data security. The cloud has rigorous security standards built in, along with AI-based controls to ensure that your security stays ahead of evolving threats.
• Better usability. Getting HR personnel and employees to adopt and use your HR system can be a challenge. When it comes to usability, cloud-based systems are easier to use, can be accessed on any device, and often include digital assistants and voice controls to enable an easy, consistent experience.
• Improved configurability. With an HRMS, customization meant asking an engineer or IT team to hard-code changes. With cloud-based HCM, you can configure the system yourself using end user tools.
• Flexibility. The move to a remote workforce is a great example of the need for flexibility. With a cloud-based HCM system, you can adjust to the needs of a remote or hybrid workforce on the fly, without requiring assistance from a system integrator or IT.
• Mobility. A cloud-based system means you and your employees can access the HR information you need on any device, from anywhere.

What can a cloud-based HCM system help you accomplish?

Research collected on businesses that have used a cloud-based HCM system for more than six months reported significant benefits, including the ability to:

• Transform business operations. As business evolves, HR is evolving along with it. Modern HR teams are becoming business partners in their organizations, expanding their role from talent identification, attraction, and retention to contributing substantive input on how to increase revenue and reduce costs. Cloud-based HCM users reported cost savings and improved productivity due to reduced reporting time, faster deployments, smoother upgrades, lower maintenance, and fewer customizations. This improved productivity frees employees to work on more strategic tasks that can lead to business transformation.
• Gain business agility. The pace of change in business is becoming ever more rapid as companies merge, acquire, and divest at record levels. The ability to quickly sense, react, and adapt to market changes is becoming an imperative. HR teams with cloud-based HCM systems leapt ahead with improved performance management, benefit administration, and payroll processes. These gains enabled their organizations to improve business agility while meeting both current and future business requirements.
• Enhance the workforce experience. Along with furthering workforce productivity, today’s HR teams are expected to support changing business requirements around talent management and acquisition. The HR teams with cloud-based HCM systems were able to take advantage of digital technologies to deliver superior employee experiences. The teams simplified routine processes and transactions, provided self-guided processes with relevant content, and reduced hiring time. As a result, the teams boosted employee satisfaction and accelerated innovation at the workplace.

What to look for in an HCM system

As HR software has evolved, many software vendors have assembled their existing applications to deliver a piecemeal solution. But these solutions won’t be able to easily integrate with future technology innovations such as chat-based interfaces and AI. Look for a solution that is built from the ground up to take advantage of the latest innovations and integrate easily with other solutions as HR responsibilities expand.

The following are important things to look for in an HCM system:

• The ability to integrate supply chain, sales, and marketing solutions with the HCM solution. Software integration is becoming key in every area of business, and HR is no exception. Your HCM solution should be able to integrate with your line-of-business technology to drive enterprise analytics and reporting, and it should be able to work seamlessly with your customer experience and enterprise resource planning tools.
• The ability to integrate with other applications not on the vendor’s platform. When your HR technology is integrated with other business applications, you can gain insights that will power better decisions about the future of your business. But this integration depends on the ability of your HCM system to access the data and processes it needs. When considering an HCM system, ask the vendor how and where the system stores its data. Some vendors are surprisingly closed in this regard.
• Transparent cost disclosure. Does your vendor have high “rip-and-replace” costs that are hidden? One red flag is when a vendor tells you that you don’t need a third-party consultant or system integrators. If this happens, ask the vendor for a comparison of implementation failure rates with and without consultants—that can give you some insight into the true total costs.
• A solid road map for chatbots, AI, and other innovations. Cobbled-together solutions can’t integrate advanced technologies into their products—and these innovations are becoming essential for a superior user experience. Find out if the vendor is currently using AI or machine learning, if they are actively working to make the HR user experience more like the consumer experience, and if they support the Internet of Things (IoT) or blockchain.
• The ability to extend your branding throughout the application. Although this seems like a minor consideration, a shortfall in this regard can alert you to a lack of true integration at the code level. This hidden complexity can result in issues with data quality, integration, and security. If your branding can’t be extended across the HCM solution, it’s likely that the vendor has combined disparate systems.
• Included HR help desk and work-life solutions. Talent solution vendors often leave the fulfillment of HR help desk and work-life functions such as volunteering, wellness, and mentoring to third-party partners. This can lead to issues in scalability and depth, as well as leaving you vulnerable if partnership relationships change or end.
• A vendor committed to investing in R&D. The success of the modern HR team depends on new innovations that improve productivity and enhance the user experience. A vendor that has cut back on R&D to shift focus from innovation to investors isn’t going to deliver the modern HCM solution you need.

Answers to the following questions can also help you find the right HCM solution for your needs:

• Is the vendor a reliable, trusted partner known in this space, with experience and customer references?
• Can I manage all my HR processes in one place with one system?
• Will I have modern recruiting tools with CRM capabilities?
• Are talent and HR capabilities built to work together seamlessly with integrations or are disparate, acquired products unable to share data?
• Are the analytics easy to configure? Does the system allow for third-party data?
• How do they handle threat detection and employee data privacy?
• What is their pace of innovation and how often are new features released?
• Is there a community of users I can turn to for assistance if I have questions or need help?

Threat detection and employee data privacy

Ensuring that employee data is protected is a critical capability for any HCM system. Make sure the system you choose is architected on security-first design principles including isolated network virtualization and pristine physical host deployment, which provide superior customer isolation and reduced risk from advanced, persistent threats. Look for a solution with tiered defenses and highly secure operations that span the physical hardware in the data centers to the web layer, in addition to the protections and controls available in the cloud. Ensure that those protections also work with third-party clouds and on-premises solutions to help secure modern enterprise workloads and data where they reside.

As you evaluate solutions, confirm whether or not the system can recognize a threat such as an employee receiving the wrong amount of money, or an unauthorized system access. The use of AI can help organizations instantly flag such scenarios and detect threats and anomalies before they become security issues.

What is the future of HCM?

The workforce is transforming into flatter, more agile networks of teams and becoming more mobile, global, and diverse. HCM is evolving rapidly to keep up. Expect to see accelerating adoption of and focus on the following technologies and areas:

• Mobile technologies. Tomorrow’s HR teams will be able to increase engagement and productivity by empowering HR, employees, and managers with consumer-grade, self-service mobile apps that are designed to work on every device in a conversational way.
• Chatbots. HR programs will be able to serve constituents faster and more efficiently with digital chatbots. Users will simply talk to the bot to conduct simple transactions, making HCM a seamless, frictionless part of the work experience.
• AI. Machine learning and AI will augment what is not humanly possible such as quickly mining thousands of resumes and data points to find best-fit candidates or recommend the right training courses to employees based on their profiles.
• A growing focus on the employee experience. Do employees love where they work? Do they feel empowered? The better the employee experience, the more successful the company will be.
• Skill building. Helping employees build new skills will become a growing emphasis for successful companies. Technologies such as skills assistants can help employees identify gaps in knowledge and direct them to resources that can help them fill those gaps.
• Diversity and inclusion. To be successful, companies need people with diverse backgrounds, perspectives, and abilities. For example, there are five generations of employees in the workforce today, companies need to meet the needs of each generation. The youngest generation among them (Gen Z) grew up with AI and mobile. For them, those technologies are must-haves when choosing a place to work.