This article was updated on July 17, 2018.
There is little doubt that the economies worldwide are increasingly global. The internet promises to bring humankind together more quickly and cohesively than any technology that preceded it. News travels around the world instantaneously, culture crosses borders and brands rise to global levels overnight.
To capitalize on this digital globalization trend, many organizations need a physical presence in the regions they want to do business. Activities such as sales operations, order fulfillment and customer service often require a physical presence.
However, current global human resources software solutions are often inadequate and unable to address the unique needs of rapidly expanding digital organizations.
Existing HR Software Approach Failed to Meet Globalization Test
Current global HR software suffers from functional deficiencies and an impossibly complex technical environment. Constellation sees the following issues:
- Complexities of HR best practices and legislation are tough for professionals to master. Global HR professionals understand more than one country from both HR best practices and legislative perspectives. However, there is no single person in the world that understands all HR regulations and best practices. At best, there are professionals who can straddle regions such as Western Europe and Latin America to name.
- Today's global HR software is not really global. It is a challenge to create and maintain global HR software. For an HR software vendor to be in the global HR systems business, the vendor needs to understand local content, regulations and best practices that govern each country the vendor wants to support. Despite the number of vendors offering global HR systems, none are truly 100 percent global. As a global HR software system requires support for all languages, all local legislation and all best practices in a single system.
- Most HR vendors can't keep up with mounting local requirements. Building a truly global software is a huge task. Vendors pursue the larger, more popular countries where their customers and prospects want to take them. The vendor needs to hire local experts who not only know the country from regulatory and best practices perspectives, but also need to keep monitoring their further evolution. Just having local experts and collecting requirements are not enough. The vendor needs to continuously build these evolving requirements into the code of its products and then test, document, release and support the changing product. This ability to stay on top of local requirements is key to winning business from global enterprises.
- Translation alone doesn't make software local. Vendors in the space need to understand the jargon and lingo spoken in each of the supported countries. Few things turn off and confuse users more than confusing labels and messages in systems. Consequently, vendors cannot afford to just incorporate translation of systems based on dictionary accuracy but need to pass the test of daily usage and stay on top of the linguistic and cultural nuances each country's HR practices demand.
- Onslaught of legislation compounds existing requirements. The need for social, tax and welfare reform is imminent all around the world. While most of first world economies struggle with aging workforces and need to change regulations to support a fast-growing population of retired workers, second and third world countries are driven by a spirit of making their tax systems more competitive and simpler. In some third world countries, the task is to introduce and enforce the very first tax, benefits and welfare systems. So worldwide, there is an acceleration and increase in lawmaker activity that has profound effects on the legislative, statutory and regulatory frameworks under which enterprises need to operate globally.
Massive Demand and Complexity Drive the Case for Vendor-Driven Global HR
The good news for enterprises, though, is that the task of delivering global HR abilities becomes more complex as scale increases and starts to work in favor of global HR software vendors. Scale in this context refers to the number of people employed and paid. Enterprise system vendors offering global HR products will have a higher number of employees using their software (as their customers) than even the largest enterprises can have employed across the world.
Talent Scarcity Requires Better Visibility Into Global Workforce
Organizations seek global HR systems in order to achieve a worldwide view of their in-house talent, regardless of employment location. The first world is quickly running out of people, while the second and third worlds often produce professionals that are eager to work in the first world on a short-term or long-term basis. Instead of recruiting from the outside when local staffing needs cannot be met, organizations can search for the capabilities, skills and talent they may have in other countries. With the rise of project-based activities and of business transformations in today's enterprises, there is higher demand for a global view of employees.
Global Leadership Needs Global Data
Enterprises in the first world face cost pressures and talent shortages. Management needs the ability to evaluate the cost of employment and the availability of talent in potential target markets before moving a function to that market. Employee-related expenditures usually comprise the largest portion of an enterprise's costs, so its executives require fast and efficient access to data on their worldwide workforce and global responsibilities.
Constellation sees that these three trends — scale, visibility and data access — will spur adoption of global HR software solutions. Expect to see a retreat from burdensome, disparate HR systems. Adoption of global HR software will continue to quicken as HR leaders recognize the advantages of a truly global software solution.
External Drivers of Global HR
Enterprises today are not only challenged by globalization, but also face a number of external trends that drive the demand for global HR software:
- Digital disruption creates winners and losers. The creation, implementation and operation of new best practices and business models, made possible by digital technologies, is top of mind to all chief officers. Constellation's research reveals that in digitally transformed industries, winners claim 40 to 70 percent more revenue and profit than in traditional industries, making it harder for latecomers to digital change to catch up. As a consequence, the whole enterprise leadership team must be ready for transformation at a moment's notice. Chief officers know they need fast, agile systems — including for global HR management — to cope with the changes that lie ahead.
- An aging workforce will require more automation. Almost no country outside of Africa and Asia still has a traditional population pyramid, with large proportions of young people and small proportions of old people. The advanced economies that produce the bulk of the world's GDP all have shrinking workforces due to retirement and overall aging, according to the United Nations paper, "World Population Ageing 1950-2050." The result is that best practices relating to the hand-to-machine ratio (or automation ratio) of enterprises need to substantially change in the next 20 years in order for enterprises to remain or become leaders over the next 10 years. Enterprises will run out of "hands" — but the new business best practices in such an environment are not yet established. Again, chief officers need to prepare for the unknown. This means they need to craft their own enterprise's strategy and be prepared to move and react fast, something facilitated by next-generation global HR software. The result: faster organizational speed and better business agility for an enterprise.
Other articles in this series:
Watch the video: Global Challenges for HCM Professionals to learn more about how the globalization trend is driving the demand for global Human Resources (HR).
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