By John Crowley

Businesses use software to manage their inventory, their finances, their customer relationships, and all other major sources of competitive advantage. Another area in which software is a business necessity is in human resources management. HR software ensures data about employees and workers is readily accessible whenever and wherever it is needed. It also signifies a business is “mature” in the sense it operates as if it were a much larger enterprise with formal, consistent policies and procedures.

But, as managers, we don’t often think about the significance of HR software as we grow and scale other areas within the business. We focus on revenue-driving activities first. It turns out, that thinking misses the full picture. The cost of payroll is usually the largest operating expense any business must incur in order to operate. Employee management software is necessary in order to track and manage that expense. In the long run, having the right software in place will optimize spend in each of the following ways.

Recruiting: Cutting down on time to fill.

Hiring an employee is an expensive business activity. There are costs associated with searching for, placing, and training someone new – in addition to having someone fill in for the vacant position. A commonly tracked metric in recruiting is average time to fill. As time to fill for a position goes up, so does the overall cost of the opening. With that in mind, how should an enterprise limit this expense? Well, first we need a reliable and sustainable way of quantifying time to fill. The most direct and measurable tool for this is an affordable applicant tracking system (ATS).

Applicant tracking systems both measure and ultimately reduce time to fill by handling the recruiting process from start to finish. They help by streamlining the process of posting a job externally, reviewing applicants, managing interviews, and ultimately onboarding a new hire. Some ATS solutions actually allow clients to store details about applicants that applied but were not ultimately hired – in case a similar position becomes available.

Reporting: Saving time to derive insights.

In a small enterprise, human resources responsibilities are usually clumped with other administrative tasks and given to someone with other administrative support responsibilities. We cannot realistically expect people in such a job to accomplish sophisticated HR analyses with the time available during the workday. To the degree we can offload HR reporting and dashboarding to systems instead of people, we will need less staff – or we can ask the staff that is available to perform other value-added duties. Staff is always more expensive than systems.

Any HR software solution with a high potential for return on investment (ROI) will offer native reporting and insight capabilities. It needs to be flexible enough where clients can design their own reports, depending on business need, without the person creating and running it needing a degree in computer programming. The operational efficiencies found in having all HR data in one place, readily accessible and preferably in the cloud, presents tremendous cost saving potential.

Workflows: Automating essential business processes.

From onboarding to performance appraisals to benefits enrollment, HR is primarily process-driven. Having consistent processes makes it easier to administer (which means less burden on those performing the administration) and it meets standards of fairness and consistency to satisfy both regulators as well as employees. A reliable software solution will deliver business processes for all essential HR activities that recur on an ad hoc or scheduled basis.

But how do we differentiate a “standard” software product from one that is “best-in-class”? From a workflow standpoint, the product should offer the ability to customize a business process – allowing the client to easily add, remove, and modify steps. Certain roles in the organizations, like HR, managers, and employees, then interact with the process differently based on the nature of their role. Of course, having insight into where processes stand at any point in time is also a necessity, so it needs to have the reporting capability that goes along with advanced workflow features.

Performance management: Building For the future.

Like capital equipment or financial investments, investments in human resources must be measured and tracked. In HR terms, this is done through “performance management.” A sophisticated performance management solution is much harder to create and administer without the help of an HR software solution because it will rely on a patchwork of paper documents, offline discussions, and informal feedback. A system helps by centralizing and consolidating performance data – allowing management to see the big picture much more clearly than they could if data is scattered everywhere.

Of course, a reliable performance management process is not going to produce immediate cost savings or cost optimization. According to Michael Ashworth, Managing Director at Nublue, HR software “solves the problems you are having today, and prevents the problems you are likely to have tomorrow.” In order words, as a small business grows larger and scales up, we should want the people involved to be the absolute best they can be. If management fails to take steps to improve performance problems today, there is a strong likelihood those problems will be far more costly down the road as responsibilities grow broader.

Integrations: Pulling everything together.

When it comes to information management, one thing is certain: when systems are not integrated, it becomes more difficult to save time or money when it comes to administering HR processes. Having best-in-class systems does not add value if a business needs to hire a full-time person to manually take information from one system (say, HR software) and dump it into another (say, payroll software). Another example would be an applicant tracking system that automatically reserves a room and sets aside time for a hiring manager to interview specific candidates. For that, HR software integrates seamlessly with employees’ calendars.

Resource optimization is only possible with a vendor that is horizontally integrated (i.e. one that offers a suite of services, from payroll to HR to financials to calendar management) or one that has strong, reliable relationships with other vendors who provide complementary services. Without integration, a business is likely posting jobs manually to job boards, having applicants applying to a free online form, manually transferring that data to a master spreadsheet, manually scheduling interviews, taking notes about interview feedback on paper, and so on. The end result is a messy process that cannot possibly keep up with the hiring demands of a rapidly growing enterprise.

Looking at all five of the areas in which HR software makes business operations more efficient, the common theme is that we are implementing a system rather than hiring a person to handle much of the administrative legwork associated with human resources management. A cloud-based HR software product that includes all of the features mentioned can be subscribed to for as much as $5 per month per employee. Any kind of labor to manage a piecemeal HR system will clearly cost much more than that.

Of course, the business will still need someone to manage such a system, including producing reports and entering data; however, instead of hiring a full-time person to perform HR administration, hire a part-time person or even fold administration into a current workers’ daily duties. And if a small business is fortunate enough to have an HR manager on staff, outsourcing the administrative aspects of HR to a system can free up enough of his or her time to become a true strategic business partner. Having the right kind of support from an HR function, including its people and systems, could make or break a business’s chances of long-term growth.