Why Do Businesses Prefer Human Capital Management Platforms Over ERP?

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Ever since the commencement of the business, you have to make choices. You want to start an entrepreneurship, partnership, or joint venture? Should you enter the FMCG market or the FMCD market? Should you have a labor-intensive plant or an automated, technology-rich plant? Would it be better to fetch employees from the weekly labor market or hire permanent workers? Invest in upgrading the machines or making the workplace a better place? Reap the profits or plough them back? Keep the investment untouched or withdraw and reinvest in other shares? Continue or wind up? And the list goes on and on!

If we sit and address each and every choice that a person has to make while running a business, we would probably be stuck on it forever. Let’s address just one of the many choices the businesses make: HRMS Solution or ERP?

Human Resource – The most important factor in any organization. There are many pit stops in the track of business where they have to stop and make decisions regarding the human resources of their organization. A debate that has been going on for years now is whether a firm should take assistance from the software for managing the human capital or the ERP system?

Before understanding why organizations choose the HRMS over ERP, it is essential to understand the meaning of both terms. So why not start this blog with the introduction to the two?

What Is ERP?

Enterprise Resource Planning (ERP) refers to the software that manages the business processes and allows the organization to deal with the business processes by making use of the applications that are coordinated. It automates the tedious tasks with the help of innovation. ERP System is an umbrella term that includes all the features like arranging the goods, assembling them, advertising them to the customers, analytics, and everything in a business’ daily processing that you can possibly name. The ERP system pushes the use of the data between multiple divisions and assists the companies to pick out the information that is necessary while ignoring the unwanted information. It wipes away the need to use various tiny applications that perform the business and finance functions.

What Is HRMS?

An HRMS or human resource management system refers to an integration of the systems and operations that manage the human capital and everything else that has to do with it. It assists in transforming the workplace from manual operations to automated ones. Thus, an automated solution for HR department allows the organizations to automate the tedious tasks related to human resources and enables the human resource manager to focus on the tasks like solving employee grievances, enhancing the working environment, employee growth, and other important niches.

So How Are They Different?

At first glance, both of them look similar: automates the monotonous and repetitive tasks, integrates various systems for a smooth flow, uses digital data, and makes the work of the management more straightforward. However, as you take a more in-depth look, you will understand that these two are definitely different from each other. Given below are a few of the main differences between HRMS and ERP:

Purpose

ERP aims to fuse each and every facet of a business.

HRMS, on the other hand, works towards managing the data of the workforce and automates the tedious, everyday HR processes.

Focus

The main focus of ERP is on the whole organization. It has something to offer to every facet of the business. HR holds a tiny part of it.

Meanwhile, HRMS focuses solely on the HR department. It does not include any other business aspect.

Specialization

ERP systems are not particularized in managing human resources. It gives equal importance to all the operations that business undertakes rather than focusing on just one niche.

HRMS has unique features that are specialized to manage the organization’s human capital. Its features can be customized to suit the needs of the organization that is using it.

Access

ERP has a centralized data storing system. All the necessary information is stored on this centralized platform, and access to the same is granted to the heads of various departments. Data overload and data theft are the most common side-effects of such a practice.

HRMS, on the other hand, specializes in the management of human resources, and thereby the only people who can access the data stores in such software are the HR managers. The modern-day solutions allow HR managers to store the data on cloud platforms with three-fold security and data encryption to avoid data theft.

Ease-Of-Implementation

It can be a tad bit difficult when it comes to carrying out the ERP system. It is prone to initial failures and can prove to be costly if not managed properly.

The application of HRMS is far more user-friendly, affordable, and does not disrupt the work of any other department but Human Resource.

Why Is HRMS Better Than ERP?

Although ERP offers to manage a lot more than the HRMS system, the organizations still prefer to use the HRMS (or HRIS) systems in their organization. Here are some of the benefits that the human capital management solution provides to the companies that are far more superior than the common ERP system.

Improving Employee Self Service

With HRMS, the organizations can authorize the employees to upload their data online. This feature is available in an ERP system as well, no doubt. However, the HRIS allows the employees to send applications regarding attendance regularization and leaves. Moreover, the employees can get clarifications about their payroll, tax benefits, mutual fund, and all the other queries. Besides, the employees can check the status of their applications regarding attendance regularization and leaves. They can receive notifications when their applications are approved.

HRMS provides the employees with their own accounts. This makes all the above tasks possible. The biggest bonus of this is that the HR managers do not have to be disturbed when the employees explore their leave balances, time off, or their applications. In fact, they can focus on the tasks that are critical and contribute to the organization’s success more than they ever have. The employees feel responsible when they are authorized to manage their own accounts. This increases their satisfaction, and hence, they contribute more towards the organization. Therefore, organization growth, employee satisfaction, management and employees’ efficiency, and employees’ feeling of belongingness are all increased by adopting HRMS in your organization.

Although ERP offers you the option of employee self-service, it still does not provide as many service options as an HRMS does. The organizations may benefit from the ERP’s employee self-service option (limited in number, though), but that is going to cost them comparatively more than what they would spend if they used the HRMS solution.

Easing The Burden On The Pockets

Looking from the bird’s eye view, HRMS may seem a little too costly. Let’s change the perspective a little. Imagine a graph that describes the costs of the HRMS solution and ERP system and compare it to the benefits they provide; you will see that the bar showing the benefits offered by employing HRMS is far higher compared to that of the ERP system.

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When it comes to the cost-benefits ratio, HRMS wins the battle by a mammoth. A business with approximately 50 employees can cost you less than ₹80 per month per employee. ERP, on the other hand, can cost anywhere between ₹60,000 to ₹20,00,000. Which if we calculate for an organization with 50 employees, comes to around ₹1200 per employee. I don’t know about your thoughts, but in my opinion, a difference of ₹1120 is pretty gargantuan.

Besides these costs, it should also be taken into account that ERP needs the heads of all the departments to monitor it constantly. HRMS, however, does not require the HR heads to watch it. The employees can use it without guidance from anyone else. This results in increased productivity of not only the HR department but also the organization as a whole. Whereas in ERP, the productivity of all the departments decrease as the heads focus more on the system rather than on the other important issues.

Assisting In Managing Employees’ Performance

Employee’s performance is something that is analyzed continuously for a long time. Despite the yearly feedback, the performance management process is constant and neverending. Having all the data about the employees’ performance is one thing and having enough room to store it in a safe place is another. HRMS allows businesses to receive 360-degree feedback in real-time. Besides, the data is available only to the HR managers and no one else, thereby stopping data theft.

The HRMS solutions collect all the data related to employee’s performance and give a detailed report about the same. The only work left to do is for HR to interpret the report and make decisions regarding the employee’s position in the organization. Yes, it is that simple. This does both – save the time of the human capital managers and encourage the employees to perform better. It removes the practices of biased decision making and bootlicking.

If we talk about ERP, it has to integrate with multiple ‘external’ applications to provide the basic functions of performance management. The data on such systems is stored centrally and is accessed by the authorities from all the business departments. There is no data privacy or data security in such cases.

Manages Key Performance Indicators

Key Performance Indicators (KPIs) is a value that illustrates the effectiveness of the organization (and its employees) in achieving the key objectives of the business. Companies use the KPIs to analyze how successful their efforts have been towards reaching the targets. This process can be automated by the HRMS solution.

HRMS solution automates a number of KPIs. Some of them being the period of service, employee turnover, absenteeism, the outcome of the employees’ efforts, time taken to achieve goals, etc. All these factors determine how successfully the organization has been achieving the goals. For example, the period of service of the employees determines their productivity. Observing how long an employee stays in the organization can assist them in knowing how productive the employees are. Employee turnover, however, is inversely proportional to job stability. The lower the employee turnover, the higher the job stability. Moreover, it is the company who has to suffer the costs of recruiting the new employees when the old ones leave. Therefore, having a low worker turnover rate determines that the organization provides a stable job and a better working environment.

Similarly, absenteeism and the amount of time taken to achieve goals determine the performance of the employees in the organization. Yes, ERP does provide KPI; however, those are purely based on the basic data and give a very basic understanding of the employees’ performance. It is for this reason that businesses all over use the HRMS solution as it gives more advanced and easy-to-understand data for a lower cost than ERP’s highly expensive basic performance management.

The Crux

So does that mean that every organization should use the HRMS solution and not the ERP system? It depends from business to business. Both – ERP and HRMS solution – can assist the organization by managing the HR resources. All that you have to do is to make a list of the advantages and the disadvantages that each serves you and analyze which one offers more benefits to your organization.

However, disregarding it all, if you look forward to having improved hiring and satisfying your employees, it is advisable that you use HRMS solutions in your organization. Moreover, the HRMS software can be configured according to the needs of the organization. And now that the pandemic has made remote work convenient, having an HRMS platform is even more beneficial as it does not require the employees or the HR managers to go to the workplace and allows them to operate the system remotely.

Despite that, I would end this blog by quoting the most common Gen Z slang, “You do you, man.” Go ahead and weigh your options. Choose the tool that suits your organization the best.