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ERP and HR systems: a 21st century revolution

Updated: Mar 1

Written by:

Tom Holmes,

Founding Director of Veran Performance

Kerry Nutley,

Western Europe Customer Strategy Director, HR Finance Service Sales and Marketing at Oracle

ACROSS much of the globe interest rates are heading higher as policymakers try and curb inflation which is reaching historical highs. We have been here before. The last time was in the 1970s, and these twin economic forces directly led to a revolution in materials and cost management; it was the birth of ERP as we know it as the need to manage costs better became paramount.

"we are on the brink of a new revolution propelled by the same economic forces"

In 2022, we are on the brink of a new revolution propelled by the same economic forces. This time the revolution is more personal; it is about people costs, people management and human resources (HR), which now shape most of the businesses’ costs. It is shaping ERP and HR systems for the modern world.

This is a subject close to my heart. Veran Performance, which I co-founded, has spent the past decade advising and helping businesses through HR, Payroll, Finance, and Procurement business cases to justify and fund ERP and Transformation Programmes. We therefore have a ringside seat on the impact rising inflation and high interest rates – separately and together – can have on business cases for all sectors.

Oracle, one of our technology partners delivers some of these crucial systems and also has a clear focus on this increasing cost pressure on their clients. According to Kerry Nutley, Oracle’s Western Europe Customer Strategy Director, rising interest rates and inflation have put an unprecedented focus on the people and business culture and the technology that underpins and enables business life. The impact of the pandemic is further accelerating this and forcing change at breakneck speed.

‘The Digital Transformation we spoke of before Covid-19 was taking three years, now it must happen in three months. Then it was about front office, customer focused transformation and now it is about the back office and cost base, and Digital Transformation is a given in a B2B environment.’

To better understand what is happening now, and how HR systems should be transformed, there is much to learn from history.

How modern-day ERP came about

In the 1970s, when inflation and interest rates were raging, expensive materials hanging around in our supply chains became a massive drag on growth. To put this into context, if you left £100,000 worth of steel lying on a dock for a year in 1974, it would cost over ten percent of its value just to leave it there for a year – and that’s without the storage costs and any degradation of the steel itself. Companies needed to make an extra ten percent profit just to stand still, to make up for the capital cost of materials stuck in their supply chains. With justification, this was then seen as the biggest single challenge for businesses.

A revolution in productivity was required and this came in the guise of Materials Resource Planning (MRP), the first version of our current ERP systems. The names of these MRP tools such as those created by Oracle remain familiar to those of us who have been in the industry for many years. At the start of the 1970s, there were a handful of companies using these tools, and by the end of the decade over 700 businesses had deployed one or other of these technologies. Businesses invested huge sums in these tools to manage their supply to minimise materials and drive huge productivity growth.

Business in 2022

We stand again on the brink of a revolution fuelled by the same economic pressures as those in the 1970s. In the UK inflation is now at 7%, the highest rate in 30 years. To tackle spiralling inflation the Bank of England has been increasing interest rates, now at 1% (May 2022), and manufacturers are raising prices. Factory gate inflation of approaching 10 percent is being ‘built in’ to customer expectations according to Make UK, the highest reading since it started to monitor inflation expectations in 2000.

These pressures are now feeding through to a higher cost of living and impacting expectations about wages. At the same time, the backdrop has changed as we grapple with how to navigate working life after a pandemic.

'It means HR business partners are able to articulate value from a people perspective and show the impact this will have to the business.'

As business life starts to return to a new normal, it is a good moment to look to the future and how ERP and Human Resource Management tools are impacting how we work. Here are my predictions for the key themes in 2022:

1. Much stronger business cases

We are already seeing much stronger business cases, particularly those that are HR and people based. Whilst the 1970s were characterised by a need to deal with material costs and the supply chain, those in 2022 are much more likely to be centred around how to drive better productivity in our human capital costs.

I’ve seen this effect already on the HR and ERP business cases I have been writing for my clients. The increases in those two little boxes of ‘Interest Rates’ and ‘Inflation’ on the top right of the calculation sheets have powered those business cases. As the numbers have risen from around the one percent I’ve been using for the past 10 years, they are compounding any savings I can identify and magnifying the value of these by two, three or even ten times multiples.

It means cases that we might have thrown out a couple of years ago now make sound economic and commercial sense, so much so, that they are becoming must do projects. After 15 years where both figures have been consistently hovering around zero, it’s a surprise return to business cases that soon add up, for what we now call Digital Transformation.

From a HR perspective it is now much easier to quantify a business case. Nutley is seeing the linking of Finance and HR with data. ‘It means HR business partners are able to articulate value from a people perspective and show the impact this will have to the business'.

2. Projects that drive people Digital Transformation

Digital processes and systems hold the key to human-centred workplaces. Rather than competing with Digital Transformation and any threat it might have to roles, it is time to fully embrace it.

In companies in all sectors, boards are investing in technology systems that cut down on admin and enable the hiring or promotion of better, more expensive, and more experienced employees. Those businesses that prosper are those that have the right mindset, collaboration, and structure in the organisation to promote and use the technology properly.

This digitalisation of the HR back office is a direct response to inflation in costs of people and the acute shortages of skills that have emerged in recent months. The shortage has been accelerated by the Covid-19 pandemic, a move to remote or hybrid working and the so called ‘Great Resignation’.

This unique occurrence is the natural churn that didn’t happen during Covid-19. That churn is rapid as people re-evaluate the time they spend at work and what they value. It is a similar trend to the one we saw after the financial crash in 2007/8.

Employees want to work with companies they see as having a clear purpose, that deliver flexibility and good pay. Gartner’s December 2021 Job, Skill and Occupation revealed an increase in talent demand across most countries at the end of last year. In short, it is a buyer’s market. As one example, starting salaries at one City law firm are now at £161,500 as they try and secure new recruits.

To help recruit the right people, we will increasingly be looking for HR systems to answer accurately the key questions of ‘who is needed’, ‘how many people we need’ and exactly ‘when they are needed’. Of course, it will go further than this. They should be tools to retain as well as attract the right people. Over time HR systems should give executives information to help them make decisions about talent, how to build their teams, and how to shape careers.

The pandemic has driven this need for real time data. An HCM system is no longer seen as a luxury and companies of all sizes and across sector are looking to digitise their operations.

'It is about HR becoming conscious about the value of roles and the skills required, which is changing how people perceive their career both in terms of development and progression.’

3. Real visibility of people spending

Having the right people with the right skills is only part of the answer for this new workplace revolution. If we go back to the 1970s, it wasn’t enough to simply identify the right materials, it was also about driving productivity growth.

In the 2020s, it is about identifying the right people and then working out how they too can drive any productivity improvements. Detailed understanding and visibility of people costs is becoming critical. Any projects that bring this visibility fast allow interventions and improvements to be made. Businesses are looking to tools that will give answers quickly, differentiating those roles that are strategic and those that are not, and effectively target those areas for productivity improvement.

Nutley agrees: ‘Organisations are savvier about data and what it can do. They ask where they can reduce admin around things like spreadsheet management. People are looking at who does the work as much as how it is done. It is about HR becoming conscious about the value of roles and the skills required, which is changing how people perceive their career both in terms of development and progression.’

Listen to the recent podcast featuring Tom and Kerry, discussing the pressures on HR and business leaders to deliver cost efficiency and effectiveness, whilst managing the demand to grow; all in a period of drastic economic change. Mind the Gap Episode 05

It is here that the story comes full circle. The development of projects and tools that allow us to eliminate time consuming jobs and concentrate on roles that will bring more company growth, mirrors the automation that happened during the last phase of high inflation and interest rates half a century ago. Oracle customers, for example, are already benefiting from technology that is updated every quarter.

At Veran, we see customers who want to install best-in-class systems that support their business wherever they are in their lifecycle. Increasingly there is a move to pick one solution that grows with the company; more and more organisations are investing once and developing the SaaS mindset. In the last two years many companies were putting plasters on things to get through the pandemic. But now they are thinking long-term, and the need to invest in a robust SaaS cloud system to ensure this longevity going forward.

Rising inflation and interest rates together with the aftermath of the pandemic are ensuring we are getting the best from our teams and that we’re giving them the right tools to deliver to their best. Underpinning all this is the move to innovate, to streamline processes and to take advantage of technology that can transform businesses.

Data is no longer limited to a function but is being used across organisations to inform better decisions for businesses. For businesses that are grappling with how to better support, motivate and incentivise their workforce, they could now be on the brink of a new, and exciting, revolution.

Tom Holmes is the Founding Director of Veran Performance. He spent many years at firms such as PWC and Oracle, transforming HR and Finance through better data and technology. Veran Performance delivers HR, Payroll, Finance and Procurement technology and process change to create better performance, growth and insight through Digital Transformation.

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