Integrating Human Capital Management (HCM) with ERP

Some businesses anticipate that an Enterprise Resource Planning (ERP) solution is the only business management software they need to streamline and run their business smoothly, but in reality, that’s not the case.

Every business and industry has its own unique set of requirements so ERPs are designed to provide the robust foundation of a business management solution, while allowing businesses to hand pick the precise complementary software they need to add to make to their solution ideally suited to their specific needs. So, what happens if your ERP can’t integrate with the complementary solutions you need?

Initially, ERP systems were developed to provide core data storage for financial, CRM, manufacturing and supply chain data. Typically, ERP systems also included some Human Resource data capacity, but usually focused on payroll functions. For a variety of reasons, however, HR Departments went their own way, seeking ‘best of breed’ HCM solutions as HR requirements became more complex and demanding. HCM or Human Resource Management Systems (HRMS) grew to include recruiting, benefit administration, performance management and compliance aspects. Ad hoc reporting, data analysis and control of the payroll function made stand-alone HCM/HRMS systems attractive to Human Resource departments, providing an increasingly complex ‘single -point-of-truth’ concerning all aspects of the employee life cycle from recruit to retire. Tied to HCM/HRMS systems were employee-facing portals for Self Service, Benefit Enrollment, Time Off Management and Time & Attendance. Often the link between ERP and HCM was reduced to export of General Ledger entries post-payroll.

In the last few years, however, it has been recognized that the rich data held in the HCM can be used to make better strategic decisions for the organization. This use and analysis of HR “big data” has led innovative companies to consider reintegration of data between the two systems.

One significant driver for integration is to reduce input of HR/PR transactional data. Multiple data entry increases time spent on administrative tasks and can result in data entry errors. Errors, in turn, can erode confidence in the analysis and resulting insights.

A unified database also makes reporting and analysis richer and more in depth as well as easier to run. Rather than reporting from a patchwork of disparate sources – databases, files and spreadsheets – a single database makes report development quicker and easier to maintain. This, in turn, makes data available to decision-makers in closer to real time.

In addition, data from the two systems can complement each other and provide new insights. ERP systems can access key HCM data to

• use employee and team performance to determine training needs and monitor results to see if output increases.
• determine whether employee turnover rates in a particular region impact revenues,
• use HCM data on employee skills and certifications in bidding for new projects and facilitate professional services automation in ERP, and
• incorporate workforce management functions like Time & Attendance into job costing analysis.

HR can use ERP data to

• use relevant ERP data (margins, revenue, profit, time-to-cash) in performance reviews,
• include CRM data from customer support, professional service and sales to support planning and training levels, and
• Link payroll functions like expense reimbursement, asset assignment, GL, and commissions directly into ERP.

Integrated systems can lead to greater efficiency, better decision-making and a better experience for employees and customers.
For more information on integrating HCM/HRMS and ERP functions, watch our previously recorded webinar: