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Technical Due Diligence Through An HR Lens


Technical Due Diligence in Humane Resources

Organizations increasingly recognize the critical role that HRM (Human Resource Management) systems play in driving employee engagement, productivity, and organizational performance. Whether you are considering implementing a new HRM system, upgrading your existing infrastructure, or evaluating potential vendors, conducting thorough technical due diligence is essential to ensure that your chosen solution aligns with your organization's needs, goals, and technical requirements, with a thorough assessment of potential risks.


This blog aims to provide a comprehensive framework and practical insights to guide you through the technical evaluation process effectively and provides some examples of how AI improves HRM systems.


HRM Systems

 
HRM Systems Are Designed To Streamline HR Processes, Enhance Employee
Management, And Drive Organizational Efficiency
 

HRM (Human Resource Management) systems are designed to streamline HR processes, enhance employee management, and drive organizational efficiency. Here's a summary of some HRM systems on the market, along with examples and the problems they aim to solve for businesses:


Workday

Benefits: Workday HCM offers a comprehensive suite of HR solutions, including HR administration, talent management, payroll, and workforce planning. It aims to solve challenges related to manual HR processes, disparate systems, and lack of visibility into workforce data. Workday HCM provides a unified platform for managing all aspects of the employee lifecycle, enabling organizations to streamline HR operations, improve decision-making, and enhance employee engagement.


Oracle

Example: Oracle Human Capital Management Cloud (Oracle HCM Cloud)

Benefits: Oracle HCM Cloud offers a suite of HR modules for managing core HR processes, talent acquisition, performance management, and learning and development. It addresses challenges like outdated HR systems, complex workflows, and limited workforce insights. Oracle HCM Cloud provides a modern, cloud-based platform with AI-driven capabilities for automating HR tasks, optimizing talent management, and driving business agility.


SAP

Benefits: SAP SuccessFactors provides end-to-end HR solutions for core HR administration, talent management, workforce planning, and analytics. It aims to solve talent acquisition, employee retention, and performance optimization challenges. SAP SuccessFactors offers a user-friendly interface, configurable workflows, and predictive analytics capabilities to help organizations attract, develop, and retain top talent, thereby driving business growth and innovation.


ADP

Benefits: ADP Workforce Now offers a unified platform for managing payroll, HR, time and attendance, and benefits administration. It addresses challenges such as manual payroll processing, compliance risks, and lack of workforce visibility. ADP Workforce Now automates HR processes, ensures payroll accuracy, and provides real-time insights into workforce data. This enables organizations to minimize administrative burdens, mitigate compliance risks, and focus on strategic initiatives.


BambooHR

Example: BambooHR

Benefits: BambooHR is a cloud-based HR software solution designed for small and medium-sized businesses. It aims to solve challenges related to manual HR processes, paper-based record-keeping, and lack of HR insights. BambooHR offers employee onboarding, performance management, time-off tracking, and HR reporting features, providing SMBs with a scalable and user-friendly platform to streamline HR operations, improve employee engagement, and foster organizational growth.


HRM System Capabilities

HRM (Human Resource Management) systems are crucial in managing various aspects of an organization's employee lifecycle and HR processes. Here's a detailed list of the capabilities that HRM systems should provide:


Core HR Management

  • Employee records management: Maintain detailed employee profiles, including personal information, employment history, and job details.

  • Organizational structure management: Define and manage organizational hierarchies, departments, and reporting structures.

  • Time and attendance tracking: Capture and track employee work hours, attendance records, and leave requests.

  • Employee self-service: Provide employees with self-service portals to update personal information, view pay stubs, and submit time-off requests.


Talent Acquisition and Recruitment

  • Job requisition management: Create, manage, and track job requisitions and vacancies within the organization.

  • Applicant tracking system (ATS): Manage the entire recruitment process, from job posting and candidate sourcing to interview scheduling and applicant evaluation.

  • Candidate relationship management (CRM): Maintain a database of potential candidates and facilitate communication with candidates throughout the recruitment process.


Performance Management

  • Goal setting and tracking: Set performance goals and objectives for employees and track progress towards achieving them.

  • Performance appraisal: Conduct periodic performance reviews, assessments, and evaluations to provide feedback and assess employee performance.

  • Competency management: Identify and assess key competencies and skills required for different organizational job roles.

Learning and Development

  • Training management: Plan, schedule, and track employee training programs, workshops, and certifications.

  • Learning management system (LMS): Deliver and manage online learning courses, content, and resources for employee skill development.

  • Career development planning: Facilitate career path planning and development discussions between managers and employees to support professional growth.


Compensation and Benefits Administration

  • Salary and compensation management: Define, administer, and adjust employee salaries, bonuses, and incentives based on performance and market trends.

  • Benefits enrollment and management: Manage employee benefits programs, including health insurance, retirement plans, and other employee perks.

  • Payroll integration: Integrate with payroll systems to ensure accurate and timely processing of employee salaries, deductions, and taxes.


Employee Engagement and Communication

  • Employee surveys and feedback: Conduct employee surveys and gather feedback to measure engagement levels and identify areas for improvement.

  • Internal communication tools: Provide communication channels, such as newsletters, forums, and chat platforms, for employees to stay informed and engaged.

  • Recognition and rewards programs: Implement programs to recognize and reward employee achievements, contributions, and milestones.


Compliance and Regulatory Management

  • Compliance tracking and reporting: Monitor and ensure compliance with labor laws, regulations, and industry standards related to employment practices, data privacy, and workplace safety.

  • Audit trails and documentation: Maintain audit trails and documentation of HR processes, decisions, and actions to support compliance and regulatory requirements.


Analytics and Reporting

  • HR analytics: Analyze HR data to derive insights into workforce trends, performance metrics, turnover rates, and recruitment effectiveness.

  • Customizable reporting: Generate customizable reports, dashboards, and metrics to track key HR metrics and KPIs and support decision-making.


These capabilities collectively enable HRM systems to streamline HR processes, enhance employee management, and drive organizational efficiency and effectiveness. Organizations should assess these capabilities when selecting and implementing HRM systems to ensure they meet their specific needs and objectives.


Technical Due Diligence On HRM Software Solutions

In technical due diligence for Human Resource Management (HRM) systems, several unique areas require specific attention to ensure the system effectively meets the organization's requirements.


Here's a summary of these areas:


Data Security and Privacy Compliance

HRM systems handle sensitive employee data, making data security and privacy compliance paramount. Organizations must ensure the system implements robust encryption, access controls, and compliance with GDPR, CCPA, and HIPAA regulations. Example: Workday offers advanced security features, including data encryption, role-based access controls, and compliance certifications.


Employee Self-Service and Accessibility

HRM systems should provide intuitive employee self-service portals and mobile applications to access HR services and information easily. Accessibility features are crucial to ensure that all employees, including those with disabilities, can access and use the system effectively. Example: ADP's mobile app offers a user-friendly interface and accessibility features such as screen reader support for visually impaired users.


Integration Capabilities

HRM systems must seamlessly integrate with other business systems, such as payroll, benefits administration, and talent management platforms. APIs, web services, and standard data exchange formats facilitate data synchronization and process automation across systems. Example: SAP SuccessFactors offers robust integration capabilities, allowing organizations to integrate HRM data with SAP ERP, third-party payroll systems, and other business applications.


Talent Management and Performance Evaluation

HRM systems should support talent management processes such as performance reviews, goal setting, and career development planning. Customizable workflows, performance dashboards, and analytics tools enable organizations to track employee performance effectively and drive continuous improvement. Example: Oracle HCM Cloud includes performance management features such as goal setting, competency assessment, and 360-degree feedback.


Compliance Tracking and Reporting

HRM systems must facilitate compliance tracking and reporting for regulatory requirements related to employment laws, labor regulations, and industry standards. Built-in compliance templates, audit trails, and reporting tools help organizations ensure adherence to legal and regulatory obligations. Example: BambooHR provides compliance tracking features for managing employee records, certifications, and compliance training requirements.


Globalization and Localization

For multinational organizations, HRM systems must support globalization and localization requirements, including multi-language support, global payroll processing, and compliance with local labor laws and regulations. Configurable country-specific templates and regulatory updates are essential for ensuring compliance in diverse geographic regions. Example: ADP GlobalView HCM offers multi-country payroll processing, tax compliance, and localizations for over 140 countries worldwide.


Advanced Analytics and Predictive Insights

HRM systems should leverage advanced analytics and predictive modeling techniques to derive actionable insights from HR data. Predictive analytics capabilities enable organizations to forecast workforce trends, identify retention risks, and optimize talent acquisition strategies. Example: IBM Watson Talent Insights provides AI-powered analytics for predicting employee turnover, identifying skill gaps, and optimizing workforce planning.


Key Risks That Can Be Found On Technical Due Diligence On HRM Systems

 
HRM Software May Have Limitations When Integrating With Other Systems And
Platforms, Such As Payroll, Benefits Administration, Or ERP Systems
 

When performing technical due diligence on an HRM (Human Resource Management) software company, several key risks may be identified. These risks can impact the functionality, security, reliability, and scalability of the HRM software, as well as the company's ability to deliver and support the product effectively. Some key risks to consider include:


Data Security and Privacy Risks

  • Inadequate data security measures: The software company may lack robust encryption, access controls, and data protection mechanisms, leading to the risk of data breaches and unauthorized access to sensitive employee information.

  • Non-compliance with data privacy regulations: The company may fail to comply with regulations such as GDPR, CCPA, and HIPAA, exposing organizations to legal and regulatory penalties for data privacy violations.


Software Quality and Reliability Risks

  • Poor software quality: The HRM software may suffer from bugs, errors, and performance issues that affect its usability, reliability, and overall quality.

  • Lack of testing and QA processes: The company may have inadequate testing and quality assurance processes in place, leading to the risk of software defects and failures in production environments.


Vendor Viability and Support Risks

  • Limited customer support: The company may lack sufficient resources or expertise to provide timely and effective customer support, leading to delays in addressing customer issues and concerns.


Scalability and Performance Risks

  • Scalability limitations: The HRM software may have scalability limitations that hinder its ability to handle large volumes of data or support a growing number of users, leading to performance degradation and system downtime.

  • Infrastructure vulnerabilities: The company's infrastructure may be susceptible to cyberattacks, hardware failures, or network outages, which could disrupt service delivery and impact system availability.


Integration and Compatibility Risks

  • Integration challenges: The HRM software may have limitations or compatibility issues when integrating with other systems and platforms, such as payroll, benefits administration, or ERP systems, leading to data synchronization problems and workflow inefficiencies.

  • Lack of API documentation: The company may have inadequate documentation for its APIs (Application Programming Interfaces), making it difficult for customers to integrate the software with third-party applications and customize functionality as needed.


Regulatory and Compliance Risks

  • Non-compliance with industry regulations: The company may fail to comply with industry-specific regulations and standards, such as SOC 2, ISO 27001, or industry-specific certifications, which could impact the security and trustworthiness of the HRM software.

  • Legal risks: The company may face legal challenges, such as intellectual property disputes, contractual disputes with customers, or litigation related to data privacy or security breaches, which could have financial and reputational consequences.


Innovation and Product Roadmap Risks

  • Lack of innovation: The company may lack a clear product roadmap or investment in research and development, resulting in stagnant or outdated software that fails to meet evolving customer needs and market demands.

  • Disruption from emerging technologies: The HRM software may face disruption from emerging technologies, such as AI, machine learning, or blockchain, which could render existing features obsolete or require significant investment to remain competitive.


Organizations can make informed decisions and mitigate potential challenges associated with selecting and implementing HRM software from a particular vendor by identifying and mitigating these key risks during the technical due diligence process.


How AI Is Improving HRM Systems

AI is revolutionizing Human Resource Management (HRM) systems by enhancing various aspects of talent management, employee engagement, and organizational efficiency. Here are several ways AI is helping HRM systems, along with examples of user and business benefits for each area:

 
AI-Driven Onboarding Platforms Can Customize The Onboarding Process Based On
Individual Employee Preferences, Job Roles, And Learning Styles
 

Talent Acquisition and Recruitment

  • AI-Powered Candidate Screening: AI algorithms can analyze resumes, job applications, and social media profiles to identify top candidates who match job requirements. This reduces manual effort in reviewing resumes and accelerates the recruitment process.

  • Business Benefit: HR teams can identify qualified candidates more efficiently, reduce time-to-hire, and fill critical positions faster, enhancing workforce productivity.

  • User Benefit: Job seekers receive faster responses and more personalized communication from recruiters, improving candidate experience.


Employee Onboarding and Training

  • Personalized Onboarding Experiences: AI-driven onboarding platforms can customize the onboarding process based on individual employee preferences, job roles, and learning styles. This improves employee engagement and accelerates time-to-productivity. 

  • Business Benefit: Organizations can reduce employee turnover and training costs by providing effective onboarding experiences that enhance employee engagement and performance.

  • User Benefit: New hires receive tailored onboarding experiences that address their specific needs and preferences, leading to higher job satisfaction and retention.


Performance Management and Feedback

  • Continuous Feedback and Coaching: AI-powered performance management tools can provide employees and managers with real-time feedback, coaching tips, and performance insights. This fosters a culture of continuous improvement and empowers employees to reach their full potential.

  • Business Benefit: Organizations can drive employee performance and productivity, improve goal alignment, and foster a culture of accountability and transparency.

  • User Benefit: Employees receive timely feedback and guidance for improving their performance, enhancing their skills and career development opportunities.


Employee Engagement and Well-being

  • Sentiment Analysis and Employee Feedback: AI algorithms can analyze employee feedback, surveys, and sentiment data to assess employee engagement levels and identify areas of concern. This enables HR teams to improve employee satisfaction and well-being proactively.

  • Business Benefit: Organizations can identify and address factors contributing to employee disengagement, reduce turnover rates, and create a positive work environment conducive to productivity and innovation.

  • User Benefit: Employees feel valued and heard when their feedback is considered, leading to higher morale and job satisfaction.


Workforce Planning and Predictive Analytics

  • Predictive Analytics for Talent Forecasting: AI-driven workforce planning tools can analyze historical data, demographic trends, and market insights to predict future talent needs and skill gaps. This helps HR teams develop proactive recruitment and retention strategies.

  • Business Benefit: Organizations can optimize their workforce composition, anticipate future talent shortages or surpluses, and align talent strategy with business goals, enhancing organizational agility and competitiveness.

  • User Benefit: HR professionals gain valuable insights and recommendations for workforce planning and talent acquisition strategies, enabling them to make data-driven decisions.


Conclusion

 
Organizations Must Ensure That The HRM System Implements Robust Encryption,
Access Controls, And Compliance With Relevant Regulations  
 

Conducting technical due diligence on an HRM system can reveal various critical risks across different facets of the software's functionality and support infrastructure. These risks include data security and privacy concerns due to inadequate measures and non-compliance with regulations, reliability issues stemming from poor software quality and lack of testing processes, and vendor viability and support capabilities challenges. Additionally, scalability limitations, integration challenges, and regulatory compliance risks pose significant threats to system performance, data integrity, and legal adherence. Furthermore, the absence of innovation and product roadmap clarity increases vulnerability to disruption from emerging technologies, emphasizing the need for comprehensive risk assessment to ensure the selection of a robust and future-proof HRM solution.


Organizations must ensure that the HRM system implements robust encryption, access controls, and compliance with relevant regulations such as GDPR, CCPA, and HIPAA to protect sensitive employee data effectively.


Additionally, evaluating the system's ability to seamlessly integrate with other business systems, provide intuitive self-service portals, support talent management processes, facilitate compliance tracking, and offer advanced analytics tools is essential for ensuring that the system meets the organization's technical requirements, enhances HR operations, and drives business success.


By leveraging AI capabilities in HRM systems, organizations can unlock numerous benefits for users and the business, including improved recruitment outcomes, enhanced employee engagement, higher performance levels, and better workforce planning and decision-making. These advancements empower HR teams to become strategic partners in driving organizational success and achieving sustainable growth.


About The Author

Jon White is an experienced technology leader with over 34 years of international experience in the software industry, having worked in the UK, Malaysia, Bulgaria, and Estonia. He holds a BSc (Hons) in Systems Design. He led the Skype for Windows development teams for many years (with 280 million monthly connected users), playing a pivotal role in the team's transition to Agile.


Jon has held multiple leadership positions throughout his career across various sectors, including loyalty management, internet telecoms (Skype), IT service management, real estate, and banking/financial services.


Jon is recognized for his expertise in Agile software development, particularly helping organizations transform to Agile ways of working (esp. Scrum), and is a specialist in technical due diligence. He is also an experienced mentor, coach, and onboarding specialist.


Over the last few years, he has completed over a hundred due diligence and assessment projects for clients, including private equity, portfolio companies, and technology companies, spanning multiple sectors. Contact Jon at jon.white@ringstonetech.com.



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